Could CFPs be forced to turn their full client lists, with names and addresses, over to the CFP Board?
That could be one result of the ongoing legal fight between the board and two Florida CFPs -- and it's a prospect that's already generating protest from a few prominent RIAs.
The CFP Board has asked a federal judge in Washington D.C. to order Jeffrey and Kimberly Camarda, of Fleming Island, Fla. -- who are not accused of client mistreatment -- to turn over their full client list. The board argues that "the identity and location of clients is relevant" for, among other things, "establishing the relevant market with respect to their antitrust claims."
Some leading advisors have voiced concerns about the request, however.
"It seems woefully far reaching to me," says Jeffrey Thomasson, a CFP and founder of Carmel, Ind.-based Oxford Financial Group -- the No. 1 firm on Financial Planning's RIA Leaders list of independent, fee-only advisors, with $10 billion in assets under management. "It violates their entire charter."
Thomasson questions whether the board's demand for confidential client names is consistent with its stated charge of serving the public. (To qualify for its nonprofit status, the board says in IRS filings that it "serves the public interest by promoting the value of professional, competent and ethical financial planning services.")
"The idea that they are asking for client names sounds terrible," adds Roger Hewins, the founder of Hewins Financial in Menlo Park, Calif., with $3 billion in AUM.
SEC CLIENT PROTECTION?
The request could also run afoul of the SEC's regulation S-P, which protects the privacy of client information, even in advisor communication with the regulator, some legal experts say.
The SEC provides a mechanism for advisors to turn over client information to the commission without handing over client names; absent such privacy safeguards, the Camardas object to giving the board such "sensitive" client data.
The board argues, however, that "Regulation S-P contains an explicit exception that allows a party '[t]o comply with federal, state, or local laws, rules and other applicable legal requirements.'"
Board spokesman Dan Drummond adds that the board expects the Camardas to release the information to the court under a confidential seal that would prevent it from coming to public light.
"CFP Board intends to defend itself vigorously but in a manner that safeguards confidential information relating to persons who are not themselves parties to this suit," Drummond wrote. "That is entirely in keeping with CFP Board's public service mission."
That's not enough, say the Camardas. "If you were a customer of any CPA or CFP you wouldn't want your name necessarily being produced" under any circumstances, says Donald Hannaford, a spokesman for the Camardas -- whose lawyers have said they will turn over the names of all the states where the pair's clients live.
Drummond declined to say whether this would suffice.
"At a minimum, anyone seeking that information in discovery must at least make a rational argument as to why the information is needed," Hannaford says. "CFP Board has utterly failed to do so."
'GOOD, AGGRESSIVE' TACTICS
Two securities attorneys -- neither of whom is involved in the case -- say the tactic is unsurprising.
"It's been argued that when a client list is ordered, it's a means of harassment," says Chicago securities lawyer Andrew Stoltmann. "I don't really buy that. I don't think it's nefarious; I don't think it's underhanded. It's just good, aggressive discovery techniques."
Brian Hamburger, a securities lawyer who often represents planners in the board's disciplinary cases, says the board routinely makes broad requests such as this of its advisors during its disciplinary proceedings.
"We have long taken the position that these requests are impermissible under Regulation S-P," which forbids financial services firms from releasing client data without those clients' consent, except under certain circumstances, Hamburger says. "Yet the CFP Board does not warn advisors of this and often induces them into furnishing private information without the requisite client consent."
The underlying lawsuit, expected to come to trial later this year or early next, turns on whether or not the board may publicly sanction the Camardas for allegedly breaking its rules for use of the term fee-only. The Camardas accuse the board of practicing an uneven disciplinary process, among other charges.
The board this year admitted it had made a mistake last year by allowing hundreds of wirehouse and other advisors in large firms to break its rules for use of the term on its own website. At the same time, the board was investigating and seeking to punish other advisors for similar infractions.
Ultimately, Stoltmann says, it will be up to the judge to determine whether the board's reasons for wanting the Camardas' client list are strong enough.
"There are some judges or arbitrators who are very reluctant to order that information," Stoltmann says. "But there is a sizable number who would order it. I would put the odds of it being granted better than 50-50."
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